Are Your Investments Keeping Up With Inflation?
A big part of our process with a prospect is analyzing their portfolio to see if they have the right asset mix to meet THEIR needs.
Here are some common things/mistakes we see when reviewing portfolios.
Too Much Cash
- This is so common
- People nervous about the market that hoard cash
- Owning too much money in the bank is almost a guaranteed way to not keep up with inflation
- We typically advise clients to keep 6 to 12 months worth of expenses in checking/savings as an "emergency fund"
- Anything on top of that should go to investments or paying down debt
Too Much In Growth/AI stocks
- It's very common now to see portfolios that have appreciation in this category and investors continue to invest in this area
- This is may be appropriate for very long-term investors after reviewing their risk tolerance
- We see too much mismatch here where someone who is really conservative and needs income starts buying this area because they were told to by a friend at a party
- This space potentially has upside as well as downside if things do not come to fruition
- Equities have shown over the long-term to help you outpace the rate of inflation
Too Little Focus on Income for Retirees
- The clients in our practice that have the most comfort see the income the portfolio produces just about matches what they are taking out of their accounts.
- So if you need 4% out of your accounts to make life work and the income produced from your portfolio is 4%, you tend to have a good amount of comfort
- We see plenty of people come in with high distribution rates and low income produced very frequently
- These people need coaching on budgeting/cost cutting and on why they need more income out of their portfolio
- We also see plenty of people who have more than they could spend with too much of an income focus when they will never be able to spend through what they have
- These people need different coaching
- Mainly getting to the bottom of what they want to see happen with what they have and what they are missing out on in life by not spending
- There are fixed income investments that may produce income opportunities in the interest rate environment we are in to help investors keep up with inflation
Lack of Tax Efficiency
- We see so many portfolios where:
- Positions are being bought and sold frequently racking up gains
- In particular short term gains that are taxed at higher rates
- They own mutual funds that pay high capital gain distributions
- These could largely be avoided by owning exchanged traded funds (ETFs)
- Taxable fixed income funds in non-IRAs
- Municipal bonds pay tax free interest at similar rates
- This is why having an advisor with tax specialization really comes in handy
- Being tax efficient is critical in a high inflationary environment
- Adding unnecessary costs don't help
If you would like a full review of your financial picture and to see if your plan is setup to succeed, schedule a complimentary call with one of our advisors.
This information is for educational purposely only. The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete. Past performance is not an indication or guarantee of future results. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.
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